Rethinking Retirement

Question of the week: I'm 40-something, have been saving for retirement for about 15 years, and have always planned to retire by age 55. But over the last couple of years I've watched my retirement fund do nothing but drop and I'm starting to get really concerned about losing my dream of early retirement. What should I do? —Worried in LA

Dear Worried,

Your situation is certainly common these days. A recent survey done by the folks at Quicken showed that almost a third of respondents had lost more than a quarter of their retirement savings since the market hit its peak back in March 2000.

Even the savviest investors are feeling the pinch these days. But by committing to long-term, common sense plans, you'll be well prepared-both emotionally and financially-to deal with a down market. Here's some advice from the members of the Armchair Millionaire community on staying the course:

Take advantage of the down market. "Since I'm a couple decades away from retiring, I'm actually happy that the market downturn has taken place. It means that I'm buying more stock for less when I make my monthly 401(k) and 'pay myself first' investments." —Charlie P.

Get diversified. "I have only taken about a 15 percent hit on my portfolio because I have a well diversified set of funds and stocks and I'm sticking with them. You should take a good look at how long until you need the money, how much risk you are willing to take, and how much money you think you need." —A. Hamilton

My checklist will help you see your retirement investments safely through tough times.

The Armchair Millionaire Checklist for Keeping Your Retirement on Track

• Watch your costs. All investments have costs, too. Whether it's fees or commissions, these costs can make a big difference in the long run. My all-time favorite low-cost investment is index funds.
• Allocate and diversify. If you're allocated correctly it means you have the right balance between stocks and bonds, between small stocks and large stocks, international and domestic, and so on. If you're diversified properly it means you have a big enough selection of each of these allocations so poor performance of a few companies doesn't damage the whole portfolio.
• Consider bonds. After the years of fabulous returns in the stock market, many people have neglected bonds. Bonds will help diversify your portfolio and provide income. They can play an important role in your portfolio especially as you near retirement age. The easiest way for most individuals to invest in bonds is through bond mutual funds.
• Hold steady. If you've been investing regularly in a well-balanced portfolio, stick with it. Many people foolishly cash out when they see their portfolio values drop, but this only puts them in poor position to catch up once the market turns around.

The BOTTOM LINE: Financial markets have always had their winners and losers. The winners always have one thing in common: a long-term approach. Keep your plan on track and you'll get the gold.